August 1, 2025

A volatile week ended lower as the Federal Reserve left rates unchanged, the deadline for tariffs imposed higher rates on several countries and a jobs report and revision on Friday showed a substantially weaker labor market. The major averages traded mixed for most of the period but lost ground the tail end of the week after a more hawkish tone from Fed Chair Powell trimmed the probability of a rate cut in September. Friday's surprising jobs revision turned that around however, with the CME Group FedWatch jumping back to a 80% probability of a September rate cut from 38% the prior day. Yields were little changed until Friday's jobs numbers and the rate on the 10-year Treasury slipped to 4.215% while the two-year T-Bill landed at 3.694%. Earnings added to volatility with big swings in winners and losers. Shares of Corning (GLW), Incyte (INCY), Carvana (CVNA), Microsoft (MSFT) and Meta Platforms (META) surged higher after beating, while Whirlpool (WHR), Align Technologies (ALGN), QUALCOMM (QCOM), UnitedHealth Group (UNH), Amazon (AMZN) and Anheuser-Busch InBev (BUD) were clobbered after either disappointing or offering lower guidance. Pharmaceutical stocks were hit hard during the week after the White House sent out letters pushing for lower drug prices and the Healthcare (XLV) sector dropped -3.92% on the weak. Materials (XLB) dropped -6.12%, while Consumer discretionary (XLY), Financial (XLF), REITs (XLRE) and Industrial (XLI) also weighed on the market losing more than 3.5%. A move into more defensive sectors however, sent the Utilities (XLU) sector higher and the DJ Utilities index hit a new all-time high. Every other sector finished the period in the red. Despite the S&P 500, NASDAQ and NASDAQ 100 hitting record highs early in the week, the major averages tumbled into August snapping a two-week win streak. Next week is light on economic data but there's another full slate of earnings. Investors will also key in on how yields react to tariffs and trade deals.

For the period, the DJIA dropped 1313.34 points (-2.9%) and settled at 43588.58. The S&P 500 lost 150.63 points (-2.4%) and closed at 6238.01. The NASDAQ gave up 458.19 points (-2.2%) finishing at 20,650.13, while the small cap Russell 2000 lost 94.29 points (-4.2%) and settled at 2166.78.

Market Outlook: The technical condition of the market deteriorated this week with several of the different indexes trading down to key moving average (MA) support areas. The DJIA and Russell 2000 held their respective 50-day MA, but the DJ Transportation Index broke below its 50 and 200-day MA losing -7.7% and erasing the gains since mid-June. The technical indicators changed from a neutral to bearish position with MACD, a short-term trend gauge, crossing into a negative condition and Momentum, as measured by the 14-day RSI, bearish and slowing for the DJIA but positive and slowing for the S&P 500 and NASDAQ as they retreat from an overbought condition. The secondary indexes, which include the DJ transportation Index, small cap Russell 2000 and Philadelphia Semiconductor Index have been deteriorating for the last few weeks and led the major averages lower this week. As previously mentioned in the Weekly Market Letter, negative divergence has been showing up in the Market Edge Opinion Ratio. This leading proprietary indicator, which compares the number of stocks being upgraded and downgraded on a technical basis by Market Edge, peaked in late June and has been showing more stocks being downgraded than upgraded for several weeks. At Thursday's close, only 33 stocks were upgraded compared to 155 being downgraded. Finally, the VIX, a volatility indicator which measures fear in the market, jumped above 20 on Friday, its highest mark since mid-June. This shows that traders are more concerned that we could see further weakness in the market going forward. 

A chart of these indicators can be found by going to the Market Edge Home page and clicking on Market Recap, which is on the right-hand side of the page just below the Second Opinion Status numbers.

Cyclical Trend Index (CTI): The underlying premise of the CTI is that the market, as measured by the Dow Jones Industrial Average (DJIA), tends to move in cycles that often resemble sine waves. There are five identifiable cycles, each with different time durations at work in the market at all times. 

Currently, the CTI is negative at -3, unchanged from the previous week. Cycles C and D are bullish, while Cycles A, B and E are bearish. The CTI is projected to remain in a negative setting into August.

Momentum Index (MI): The markets momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since it is an indication that a majority of the broader based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish. 

The Momentum Index is Neutral at -1, down seven notches from the previous week. Breadth was mixed at the NYSE as the Advance/Decline line dropped 3485 units while the number of new 52-week highs exceeded the number of new lows on four sessions. Breadth was also mixed at the NASDAQ as the A/D line lost 7546 units while the number of new highs out did the new lows on four of the five days. Finally, the percentage of stocks above their 50-day moving average dropped to 58.2% vs. 73.7% the previous week, while those above their 200-day moving average fell to 54.1% vs. 60.0% the prior week. Readings above 70.0% denote an overbought condition, while below 20% is bullish. 

Market breadth was negative this week with the NYSE and NASDAQ Advance/Decline lines, leading indicators of market direction, losing more ground. While new 52-week highs on the NYSE outdid the new lows, there was contraction in the number of new highs. The NASDAQ also saw the number of new lows expand with both exchanges recording more new lows than highs in Friday's session for the first time since mid-June.

Sentiment Index (SI): Measuring the market's Bullish or Bearish sentiment is important when attempting to determine the market's future direction. Market Edge tracks thirteen technical indicators listed below that measure excessive bullish or bearish sentiment conditions prevalent in the market. The Sentiment Index is Negative at -2 unchanged from the previous week. 

Investor Sentiment surveys were a mixed bag this week with The American Association of Individual Investors (AAII) reporting an increase in retail bulls to 40.3% which is above the historical average. The National Association of Active Investment Managers (NAAIM) Exposure Index was lower for a fourth consecutive week falling back to the lowest exposure to equities since mid-May. The most telling sign of a market top, however, comes in a jump in margin balances to a new record high of $1,007.96 million in June as reported by FINRA, up from $920.96 million in May. That tops the previous record high in margin balances from October 2021. While the major averages ticked higher over the next month it preceded a more than -20% drop in the S&P 500 over the next several months.

Market Posture: Based on the status of the Market Edge, market timing models, the 'Market Posture' is Bearish as of the week ending 8/01/2025 (DJIA - 43588.58). For a closer look at the technical indicators and studies that make up the market timing models, check out the tables located below.

Industry Group Rankings: What's Hot (10) - What's Not (20): The following are the strongest and weakest Industry Groups for the period ending 7/31/25. Strongest: Metals & Mining, Healthcare Products, Technology Hardware and Healthcare Services. Weakest: Paper & Forest Products, Insurance, REITs and Consumer Goods. To review all the Industry Group rankings in the Market Edge universe, click on the Industry Group tab.

ETF Center: The top performing ETF categories for the week ending 7/31/25 were: Commodity- Energy (+3.07%), Shorts (+2.33%), Bond-Government Long Term (+1.03%) and Bond-Corporate Invest Grade(+0.64%). The weakest categories were: Sector-Alternative Energy (-5.12%), Sector-Basic Materials (-4.68%), Specialty Natural Resources (-3.37%), Europe (-3.33%) and Specialty Health (-3.12%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

By David L. Blake, CMT